KENTWOOD — For months, Advance Packaging Corp. has been trying to fill nearly two dozen openings at its facility in Kentwood.

KENTWOOD — For months, Advance Packaging Corp. has been trying to fill nearly two dozen openings at its facility in Kentwood.

Unfortunately for the company, it’s become a “very difficult” process to hire the needed mechanics, maintenance managers and technicians for second and third shifts at its facility at 4459 40th St. SE, according to Vice President Scott Wilcox.

The Kentwood-based Advance Packaging, a manufacturer and labeler of corrugated board, faces labor challenges common to many area manufacturers. To help alleviate that bottleneck, the company invested $13 million into a German-made printing process machine to drive throughput and add capacity without having to add to headcount.

“If we can produce more per hour with the same amount of people, that will put us in a good position and allow us to grow,” Wilcox told MiBiz.

Advance Packaging’s new printing machine can churn out 10,000 high-resolution sheets per hour and inspects each piece of material to ensure it’s free of flaws. The machine prints on corrugated board, which can then be turned into packaging for consumer goods such as a carton for beer.

According to Wilcox, the labor shortage has pushed packaging manufacturers and their customers to embrace automation technology and resort to additional training for workers.

“There’s a lot of automation being brought on right now,” he said. “We’re having a very difficult time, as most people are, in finding the staffing and finding the people to run the equipment. It would be one thing if there was just a plethora of extra people, (but) it’s really not the case anymore. You’re really struggling to find good people and good help.”

With more than 20 machines at its 500,000-square-foot facility, Advance Packaging will become more vertically integrated with its new investment in equipment, which is expected to be operational by later this month.

According to Wilcox, Advance Packaging is one of the only manufacturers in North America to offer this type of technology, which will allow the company to “serve clients on a national level while keeping manufacturing jobs here in Michigan.”

By adding capacity, the company is combining two presses to print and die cut on one machine. Wilcox hopes that by adding this “new process, the amount of inherent downtime is going to be significantly less, giving (the company) an overall higher output.”

“We’ll be able to allow part of the crew to concentrate on printing, and then part of the crew to concentrate on die cutting,” he said. “That’ll really allow us to raise the quality levels of both the printing and the die cutting and increase the overall efficiency of it.”

STARTING OFF

Advance Packaging generates less than $100 million in annual sales and ships 60 percent of the high-end packaging it produces to sites more than 500 miles from West Michigan.

Most of the company’s business comes in the consumer products segment, which makes up about 40 percent of its overall operations, according to Wilcox.

Since 2007, the company’s grown by 300 percent after moving into its current facility.

“It’s strong,” Wilcox said of Advance Packaging’s business. “I can’t speak for all of our competitors, but we’re very busy and I’m assuming from what I’m seeing in the marketplace, everybody else is. … There isn’t any sign right now to tell me this can slow down anytime soon.”

Despite Wilcox’s optimism, Cleveland-based Freedonia Group, an industry market research firm, expects the “growth in corrugated and paperboard box demand will be relatively slow through 2020,” as “market maturity and competition from other packaging formats continue to limit gains.”

However, Freedonia noted in a recent report that corrugated and paperboard box manufacturers will benefit “from greater demand for boxes with high-quality graphics,” including a greater emphasis on image clarity.

Along those lines, Wilcox is seeing more opportunities for Advance Packaging to evolve its printing strategies to make better products. One way is to focus on the retail packaging industry by creating high-end direct-print products, which include colorful display boxes that customers can find at club stores and retailers such as Meijer, Kroger and Target.

To focus on the high-end business, Advance Packaging needs to be able to print in color at a high resolution, said Scott Kloss, the company’s vice president of sales and marketing. Think beyond typical brown boxes to a visually appealing case of craft beer as one example, he added.

The high-end direct-print product has always been a part of the company’s business, Wilcox said.

“We really thought that this high-end part was a way we could grow and expand out of West Michigan,” he said. “We did that, and we’ve been very successful with that over the last 10 years. This new press we put in is basically a backup to our current press. It’s also giving us a lot of additional capacity.

“We pretty much filled out most of the capacity we had on that current press.”

Before Landscape Forms Inc. acquired Kornegay Design last year, the Kalamazoo-based designer and manufacturer of site furniture, accessories and lighting mulled several acquisition targets that shared its design culture and core beliefs.

Before Landscape Forms Inc. acquired Kornegay Design last year, the Kalamazoo-based designer and manufacturer of site furniture, accessories and lighting mulled several acquisition targets that shared its design culture and core beliefs.

When the company finally decided on the deal for Kornegay Design, a landscape architectural designer and manufacturer of concrete planters from Phoenix, Ariz., the transition seemed to “fit perfectly,” said Jodi Havera, vice president of finance and CFO for Landscape Forms.

“We service our customers, which is to serve them in the best way we can,” Havera told MiBiz. “We follow the M&A activity in the furniture market — we are much smaller than the Herman Millers and Steelcases — but we, too, want to meet expectations from our customer base.”

Call for nominations:M&A Deals and Dealmakers of the Year Awards

MiBiz and the Association for Corporate Growth’s Western Michigan Chapter are accepting nominations for the 2018 M&A Deals and Dealmakers of the Year Awards. To be considered, the deal must have been completed between July 1, 2017 and June 30, 2018.

Nominations will be accepted for deals of less than $25 million, $25 million to $150 million, and more than $150 million.

Individual Dealmaker of the Year nominations can also be submitted for executives and advisers. The deadline for nominations is Aug. 15, 2018 at 11:59 p.m.

Winners and finalists will be honored at an evening reception on Oct. 25, 2018 at the Gerald R. Ford Presidential Museum, and in a special section in MiBiz. Visit mibiz.com/deals for more information and to submit a nomination.

Robb Smalldon, who recently became executive vice president of development at Landscape Forms, said the deal for Kornegay Design expands the company’s offerings and allows it to become a premier player in the site furniture segment.

“In that acquisition, the founding folks were nearing retirement and didn’t have a succession plan,” Smalldon said. “It worked out well. (There are) a lot of synergies between the two companies.”

While Landscape Forms keeps revisiting its playbook to explore potential targets for future acquisitions, industry experts say deal activity seems to have flattened for West Michigan manufacturers, indicating a possible plateau in the current M&A cycle.

M&A attorney Dustin Daniels, a partner at the Grand Rapids-based law firm Miller, Johnson, Snell & Cummiskey PLC who works with several manufacturing clients, believes the active dealmaking cycle is “so strong” that it likely lacks enough runway for deal volume to increase much more.

“That’s not to say that it’s weakening, necessarily,” Daniels told MiBiz. “It’s just been so strong for so long, it’s hard to imagine it picking up. In a lot of ways, I think being flat is not unhealthy given how strong it’s been the last few years.”

Daniels’ sentiment aligns with the findings in a national report from PricewaterhouseCoopers, which described the current M&A cycle as “complicated.”

According to the report, while economic growth remains steady and will likely accelerate, the number of U.S. deals has flattened in recent quarters. Despite the deal market reaching a plateau, PwC doesn’t think the factors “necessarily signal the end of the M&A cycle.”

To Daniels, the report demonstrates the maturity of the M&A market for manufacturers, as well as some underlying uncertainty for advisers because the current cycle is hanging on longer than most expected.

When making annual forecasts, Varnum LLP attorney Peter Roth often is surprised by how strong the market has remained year after year.

“I’ve said we’ve got to be towards the back end of the cycle, and then another year goes by and we’re in another good market,” Roth said. “If the economy keeps going, I think it’ll continue to bump along as it is now — good, but not great. If we get out into 2019 and the economy starts to slow, or … people think we’re heading toward a recession, then that’s when I think you’ll see the end of the cycle.”

Roth also focuses on M&A activity with multiple clients in the manufacturing sector. Like Daniels, he said the current M&A market is “very strong,” but it is changing.

“We’re still as busy as we’ve been, and lots of good clients (are) doing good deals,” Roth said. “But I would say it’s not an environment where every deal gets done, or every deal has 10 people bidding on it like a couple of years ago. It’s not an environment where every deal’s getting a premium valuation.”

The reason: “I think people are being more cautious,” he added. “It’s harder to get deals done.”

MAKING DEALS

Perhaps bucking the national trend, West Michigan manufacturers remain active in completing deals so far in 2018.

According to M&A data compiled and analyzed by MiBiz, the overall deal volume in West Michigan increased 6 percent year-over-year through the end of July. Manufacturers also made up a higher percentage of deals: 37.5 percent this year compared to 28.9 percent through the same period in 2017.

In part, serial acquirers are driving M&A deal activity locally in recent months. Kalamazoo-based medical device manufacturer Stryker Corp. leads the pack with five acquisitions over the last 15 months, followed by Holland-based JR Automation Technologies LLC with three deals in the last six months.

Grand Rapids-based Burke Porter Group also completed three deals so far in 2018. Last month, the manufacturer of dynamometers, instrumentation and assembly systems acquired the Florence, Italy-based Galileo TP Process Equipment S.r.l. as part of a “desired strategy” to pursue more tech-oriented companies.

Other serial acquirers include office furniture manufacturers such as Zeeland-based Herman Miller Inc. and Grand Rapids-based Steelcase Inc., each with a pair of deals since December 2017.

ON THE SIDELINES

With some signs nationally that M&A deal volume has begun to flatten out, some experts note that companies are hoarding more cash than ever before. According to the PwC report, cash on hand for U.S. corporations and investors reached $2.4 trillion in 2017, up from roughly $2.3 trillion in 2016.

“This trend has kept valuations elevated as the demand for deals exceeds the related supply,” according to the report.

Roth at Varnum also is “seeing some of that,” noting that a lot of his clients who are in manufacturing are simply being cognizant of the last recession when deciding to take on debt to fund deals.

“When people are too levered or didn’t have a safety net, a lot of them got in trouble. People still remember that, so they’re being a little more cautious,” he said.

However, even if the economy were to dip, opportunistic companies with the “cash and borrowing capacity to strike” can capitalize on distressed deals, he added.

“I think there’s a sense — and I share this sense — that over the past five years, there have been a lot of deals done at premium valuations with a lot of leverage,” Roth said. “If there’s a slowdown, if multiples and valuations continue to go down a bit, you could have a position where people — especially maybe private equity and where they are in their cycle — are having to unload businesses and have exits.”

Advisers contacted for this report said private equity buyers remain active in manufacturing deals across West Michigan and nationwide. As Daniels sees it, private equity firms still seem to have “more money to invest than there are opportunities to invest in,” which has resulted in them being more aggressive in pursuing deals.

“They have more of an incentive to put the money to work so they can start earning a return on their money to give everybody a carried interest,” Roth said. “Corporate buyers can be more patient.”

DEALING WITH UNKNOWNS

Numerous macroeconomic issues like steel and aluminum tariffs and international trade agreements have created disruption in the automotive industry, which could affect dealmaking among suppliers locally, Daniels said.

In part, automotive suppliers are being forced to deal with added costs as domestic steel producers “raise their prices to make more money,” he said.

“I think it’s too early to tell how that will truly play out though,” Daniels said. “I think it needs to take some time.”

Despite some unknowns in the global industry of manufacturing, the National Association of Manufacturers in June surveyed hundreds of manufacturers and found that 95.1 percent have a positive outlook for their companies, an all-time high.

The survey, which received responses from 568 companies of all sizes, indicated that “it is clear that businesses continue to experience highly elevated levels of activity as a result of pro-growth policies like tax reform, with optimism once again breaking records.”

For Daniels, “everyone seems to be still optimistic,” despite apparent headwinds. In part, the optimism stems from the continued strength in the economy and the markets, he added.

“There’s definitely some unknowns with the tariffs and that (makes) people a little more conservative,” Daniels said. “But overall, I would say the theme still seems to be pretty positive.”

By investing an expected $3.5 million for a new 41,280-square-foot facility, the Walkerbased molding and casting manufacturer plans to offer machining services to its customers, according to co-owner Gregg Betz.

The expansion, which could create up to 15 new jobs, will allow the company to bring machining in-house after previously farming out that service to third parties, he said.

“We’ve always had our customers ask us to do machining, or for us to find outside machining sources for them,” Betz told MiBiz. “We’ve had a number of our customers that have asked us to do some of the 2-D type machining, especially at the bottoms of the castings.”

To accommodate the new building, an affiliate of Betz Industries acquired three parcels along Walker Avenue NW totaling nearly 52 acres, including a vacant house and the remainder of the Triick Sand Pit. The property abuts the back edge of Betz Industries’ more than 28-acre industrial site that fronts Bristol Avenue NW in Walker.

Pending approvals from the city of Walker, the company hopes to have construction of the new facility completed by the fourth quarter of 2019, Betz said. Grand Rapidsbased John W. Potter Inc. will serve as the general contractor for the expansion.

Betz said the land should accommodate additional expansions for the company. In a presentation of concepts to the Walker Planning Commission, Betz Industries indicated the site could have room for three possible additions.

For now, the plan for the new building “is just going to be for machining castings,” Betz said. “That’s all we’re looking to do at this point in time.”

The expansion by one of Walker’s “most stable and oldest companies” comes as good news for City Manager Darrel Schmalzel, who said Betz Industries’ continued investment brings “more stability” to the community.

“They continue and always have been a wonderful asset to the community,” Schmalzel said.

Although the expansion will add new capabilities to the company’s offerings, it will also help the manufacturer with logistics, Schmalzel added.

“It allows them to have access to Walker Avenue, which is great access for their truck traffic and deliveries,” he said. “It’s also close to I-96. The 42,000 (square-foot expansion) is just the first part of a plan — they can expand as they need to.”

According to Schmalzel, Betz Industries will submit an actual construction plan for the site if the Walker Planning Commission grants final approval for the project on Aug. 1. He added that the company has yet to apply for any tax breaks for the expansion.

Betz declined to disclose the company’s annual sales, but noted the majority of Betz Industries’ end customers are in the automotive and tool and die industries.

“We do a good portion of machine tool and energy type castings,” he added.

Betz warns the “ebb and flow” of the automotive industry cycle is forcing suppliers to adjust to slower business. Despite flat year-over-year quote activity so far in 2018, Betz said he expects business to “pick up a little bit” this quarter as more projects come online.

That sentiment aligns with a forecast from Southfield-based Harbour Results Inc. Earlier this year, Laurie Harbour, president and CEO of Harbour Results, told MiBiz that mold makers had $2.3 million in work on hold in the first quarter of 2018, which translates into delays for some projects. However, she said that “it’s going to be a busy back half of the year” as “most of the companies we are talking to are still expecting very high capacity utilization.”

According to a second-quarter report from the Original Equipment Suppliers Association (OESA), automotive supply chain executives indicated they planned to increase capital expenditures this year over 2017, especially for firms with revenues of less than $151 million. Additionally, 76 percent of suppliers said they were “very confident” their companies would implement the capital investments needed to hit demand requirements in 2018 and 2019, although “sales and production volumes, customer program launches, technology direction and political decisions are all concerns for delayed or hindered investment plans.”

That degree of unpredictability has Betz questioning who to believe when it comes to industry forecasts.

“I look at the articles on some of the tool and die people that have been interviewed in the past, and some of the articles are saying that 2019 is going to be a huge year, or 2018 is going to be a huge year, and I wonder when it’s going to happen,” Betz said, noting that with tariffs and other headwinds, the automotive supply chain faces many threats these days.

“In the past we’ve been extremely optimistic about how things are going and yet you see the consumers on the other hand are very pessimistic,” he said. “And now it’s kind of reversed and businesses aren’t very optimistic as in the past, and the consumers are keeping the economy going.”

To that end, in the most recent Supplier Barometer Index from OESA, automotive suppliers’ optimism slipped four points in the second quarter from a three-year high to start the year.

“It’s always a difficult concept,” Betz said of predicting the path for the automotive industry. “There’s just so many forces out there.”

MADE IN MICHIGAN

With the addition of a new facility in the city of Walker, Betz Industries will be able to offer machining services to customers. Betz Industries, a manufacturer of moldings and castings, will invest $3.5 million for the new 41,280-square-foot facility on nearly 52 acres an affiliate acquired along Walker Avenue. The Walker Planning Commission will consider the expansion plans at its Aug. 1 meeting. Betz Industries serves the automotive, wind energy, machine tooling, industrial tooling and stamping and die industries.

By making a significant investment in cybersecurity, West Michigan manufacturers can avoid having their sensitive information getting into the wrong hands.

Industry among most targeted by attackers

By making a significant investment in cybersecurity, West Michigan manufacturers can avoid having their sensitive information getting into the wrong hands.

Just ask Jessica Dore, a principal in technology risk management in Grand Rapids at accounting and consulting firm Rehmann LLC. Dore works on the firm’s Corporate Investigative Services unit that performs cybersecurity assessments and vulnerability and penetration tests for clients in manufacturing, as well as banking, higher education and other sectors.

According to Dore, hackers are trying to “exploit vulnerabilities” by getting into various systems of sensitive data. Big data breaches oftentimes result from “individuals wanting to get access to financial systems” to transfer money out, which they achieve via phishing emails or “through other means of social engineering,” Dore said.

However, advanced manufacturing companies face cyber risks beyond compromised bank accounts. Although they are often heralded for streamlining production and improving efficiency, connected devices on the shop floor are prime targets to be compromised, including in ways not immediately noticeable, according to industry experts.

For example, Forbes reported last year that researchers had identified vulnerabilities in popular industrial robots that allowed them to be controlled remotely, setting up manufacturers for “significant” if not “catastrophic” threats.

“If an entire factory’s output is wasted because robots had been secretly tweaked to produce faulty goods, millions could be lost. Worse, parts for planes or cars could be changed as to become dangerous if put out into the real world,” according to the report.

That’s why West Michigan manufacturers are making “significant investments” in cybersecurity, said Tim Mroz, vice president of marketing and communications at The Right Place Inc.

However, the level of investment depends on the individual business, he said.

“Some businesses have chosen to invest internally in their I.T. teams, in hardware, software, human resources (and) internally to have that management on site,” Mroz said. “Others have chosen to work through consultants, to work through other experts in the industry outside and contract that work. One is not right, one is not wrong. There’s just two very different ways to approach it.”

Many West Michigan manufacturers receive confidential information from customers that they need to protect. That can include drawings, contracts, patents or other “sensitive material information.”

Because of this, manufacturers such as the Grand Rapids-based Medbio Inc., the Cascadebased ADAC Automotive and the Walker-based Plasan North America Inc. are investing and “adopting stronger cybersecurity protocols mainly because of security compliance reasons,” Mroz said.

“Many of our manufacturers may have defense or government contracts and now they need a cybersecurity protocol, they need to be certified in order to maintain those contracts,” Mroz said.

He added that highly valuable intellectual property needs to be protected because those platform innovations “will continue to have iterative improvement made to them in subsequent years.”

“There are certain fundamental platforms, innovations on certain automotive platforms, defense platforms, that will stay and will continue to be built upon over the next five to ten years,” Mroz said. Compromising that foundational innovation may put at risk those “iterative product developments.”

“I think with companies and manufacturers, if they have a new prototype that they make and they don’t want so-and-so to see what they’re working on, then (it’s) important to invest in cybersecurity,” she said.

INNOVATION TRUMPS IP THEFT?

However, some manufacturing executives say the pace of innovation and the rise of technology makes protecting trade secrets less important these days.

Travis Randolph, the president of Zeelandbased Symbiote Inc., a designer and engineer of laboratory furniture for life sciences, aerospace/ defense and high-tech R&D environments, said contract furniture companies pay close attention to protecting their designs from being ripped off by Chinese companies. That’s why so many companies will manufacture overseas but keep their R&D operations at the home office, he said.

“High-tech manufacturing of course is what’s being done in China, but the high-tech R&D will never be done outside the U.S. It’s the only way you protect your intellectual property,” Randolph told MiBiz in a recent interview.

Still, he cites Moore’s Law, which describes the rapid pace of advancement in technology, as one reason why some manufacturers worry less about protecting intellectual property and care more about continuing to innovate.

If they keep innovating, it won’t matter if someone steals the intellectual property because it will be obsolete as soon as the company introduces its newest iteration anyway, Randolph said.

“Moore’s Law applies to everything in the technology business nowadays, so that you really don’t care if they steal the I.P.,” he said. “Well, you do care, but it’s not as damaging as it could be if they steal the I.P. of your existing product because that’s being replaced by the new product that you’ll be introducing in three months. And the faster the acceleration, the less significant the I.P. theft is.”

DATA BREACHES ON THE RISE

According to Dore at Rehmann, West Michigan manufacturers need to better understand the threats they could face, rather than become another victim. The place to start, she said, is by protecting their finances from being compromised.

“The majority of businesses are doing most of their banking online,” Dore said. “What the hackers want to do is to be able to get into … manufacturers’ online banking platform.

“We’re constantly working on projects with our clients to test their cybersecurity efforts and then give them recommendations on how to improve their cybersecurity controls.”

Data breaches have become a large issue for employers today, said Dore, noting the number of breaches continues to rise. According to the Identity Theft Resource Center, breaches nationwide reached a record high of 1,579 in 2017, up 44.7 percent from the previous year.

“I started 13 years ago with the firm. It’s something that’s been increasing every year since I started,” Dore said. “With all the attacks that are happening out there today, cybersecurity is a huge topic for all of our clients that we have at the firm.”

To combat breaches, Rehmann offers clients firewall protection, intrusion detection and prevention systems, which Dore said prevents and detects malicious software and traffic. The team also analyzes when to shut off those attacks.

She said the process can be costly, depending on the software implemented, but is still a crucial step for businesses.

GETTING READY

The authors of the most recent IBM X-Force Threat Intelligence Index called manufacturing the third most-targeted industry for cyber attacks last year.

In 2017, manufacturers had 13 percent of the overall security incidents and were targeted in 18 percent of all attacks. Additionally, almost 30 percent of all attacks used malicious input data that hackers use to try to control or disrupt the target company’s systems.

Still, manufacturers disclosed a limited number of incidents in 2017, which researchers attributed to underreporting by the industry.

“This could be because the manufacturing sector is not subject to the same obligations to report breaches as industries such as financial services, healthcare and retail,” the authors wrote.

In a 2017 survey of manufacturers, Naperville, Ill.-based accounting and advisory firm Sikich Capital Management LLC found that 63 percent of manufacturers conduct I.T. risk assessments and 37 percent conduct intrusion testing. However, the vast majority — 70 percent — fail to provide their employees with cybersecurity training, according to the survey.

That training becomes especially important since attackers perceive manufacturers as being weak and frequently target the sector, as the IBM report also indicates. In the Sikich survey, only 8.5 percent of respondents indicated they were “very ready” to address cybersecurity.

“It’s one of the most unregulated industries,” Brad Lutgren, a partner in Sikich’s security and compliance practice, wrote in the report. “There hasn’t been as much adoption in manufacturing simply because there isn’t anyone beating them with a stick to say you have to be taking specific security measures.”

New tariffs and an escalating global trade war in recent weeks have stoked fears that global manufacturers will move production outside of the United States to protect their margins.

New tariffs and an escalating global trade war in recent weeks have stoked fears that global manufacturers will move production outside of the United States to protect their margins.

Those fears were fanned in part as companies like Milwaukee-based Harley-Davidson Inc. announced plans to shift some of its motorcycle manufacturing outside of the U.S. to avoid stiff retaliatory tariffs imposed by the European Union.

Locally, Zeeland-based office furniture manufacturer Herman Miller Inc. (Nasdaq: MLHR) said it was closely monitoring how the tariffs played out globally in deciding how to react.

“While stable overall, there are still pockets of political uncertainty, and we continue watching the recent U.S. actions related to tariffs and the responses from other nations,” President and CEO Brian Walker said during a quarterly conference call earlier this month to discuss the company’s financial performance. “As a result, we’ve proactively developed and continue to refine contingency plans.”

According to a report in Bloomberg, those plans include shifting production overseas if tariffs become too onerous to keep manufacturing in the U.S. However, a spokesperson told MiBiz the quotes from CFO Jeff Stutz included in the report were “taken out of context in response to theoretical questions of the escalating trade war.”

“One of the core tenets of Herman Miller’s manufacturing strategy is to produce goods as close to the end customer as possible,” Stutz said in a statement to MiBiz. “Keeping this in mind, we are continually developing and refining business contingency plans to best utilize our global supply base and manufacturing resources. This includes planning around sourcing decisions that could be made in response to escalating global trade tensions.

“With that said, based on current conditions we have no plans to relocate or otherwise negatively impact any of our West Michigan manufacturing operations.”

However, the push to locate production close to end customers has long driven manufacturers’ decision making, said Jim Robey, director of regional economic planning services at the Kalamazoo-based W.E. Upjohn Institute for Employment Research. He doubts many companies are making long-term decisions based on the near-term volatility caused by the tariffs.

He cites the Harley-Davidson offshoring move as an example of that push for a localized production model.

“With Harley-Davidson, they had already planned to move production offshore because they wanted to move production closer to markets,” Robey told MiBiz. “This is not a short-term situation. With tariffs, it’s a volatile time right now. But, until more certainty comes into the market, I can’t see companies making big capital decisions to move production. It would be a quick reaction to a situation that hasn’t played out yet.

“In my opinion, large capital moves is a very strategic thing, not a quick-reaction thing.”

SABER RATTLING?

While the tariffs are cause for concern and pose challenges for manufacturers seeking to protect their margins, executives tell MiBiz they are only one factor in their production planning processes. In some cases, manufacturers don’t have the option to move production.

“In the relatively short time since tariffs and trade wars became front page news, no company could have credibly assessed and formulated a plan of action for major offshoring based on these issues,” said Jim Monterusso, president of the Wyoming-based HME Inc., a manufacturer of heavy-duty truck chassis and fire apparatuses.

From his perspective, Monterusso sees two possible scenarios playing out with the recent attention to companies considering offshoring production. He said either “the company already had such a plan well underway and the current tariff issue provides some coincidental cover,” or “the company is doing some saber-rattling to ensure public leaders are thinking through the potential consequences of an extended trade war or trade uncertainty.”

“I think we are starting to see some of (the latter) and are likely to see more, especially if the media and the public begin parroting these consequences as ‘done deals’ when they really aren’t,” Monterusso said. “After all, who loses if/ when one or more elected official announces later that they ‘saved’ American jobs from the crosshairs of the tariff threat?”

As many manufacturers strategize what to do next, Woodways Inc.’s Marta Fenu said the Zeeland-based manufacturer of custom kitchen cabinetry has no plans to move its production. According to Fenu, the marketing and business development manager for Woodways, the manufacturer had already set its development and expansion plans for the U.S. when the tariffs were announced.

In May, Woodways was acquired for $2.3 million by the Italy-based Zordan Group, which manufactures store fixtures and interiors.

“The market that we want to serve with Woodways is the U.S. market,” Fenu wrote in an email to MiBiz. “Our goal is to be sustainable locally and not subject to the influence of external elements we can’t control, such as duties and imports tariffs. So, basically, we are not affected as part of our strategy.”

UNCERTAINTY RISES

At Norton Shores-based Seabrook Plastics Inc., General Manager and COO Bill Veldboom said the tariffs are creating a lot of disruption within the automotive supply chain, but not enough to force a move of its production. The company serves the automotive, military, medical, consumer product, and food and beverage industries.

“There is an incredible amount of uncertainty out there,” Veldboom said. “One of our sales reps based on the east side of the state is completely focused on the automotive industry and he confirmed that all the major suppliers are developing contingency plans because it is not clear whether there will be any reprieve on tariffs.”

Veldboom added that his sales rep who just returned from China said major tooling suppliers are “reeling as uncertainty has disrupted their lives.”

The effects of the tariffs may take “some time … to ripple through the supply chain,” according to Veldboom.

“One of our customers that supplies Harley- Davidson reportedly expects some disruption, but not to the extent that plans have been communicated to move any production,” he said.

Similarly, Robey said the current conversation about tariffs and manufacturing should bring up issues related to uncertainty, rather than companies opting to move production elsewhere.

“Not knowing how much materials will cost — that may be hampering optimism, and I am just speculating,” Robey said. “When companies can’t plan for the future, that makes them nervous, but I think it’s more uncertainty than moving production.”

WALKER — Since relocating its headquarters to West Michigan in 2015, Plasan North America Inc. has moved closer to its customers, added hundreds of jobs and expanded its facilities.

WALKER — Since relocating its headquarters to West Michigan in 2015, Plasan North America Inc. has moved closer to its customers, added hundreds of jobs and expanded its facilities.

By Frank Wash’s estimates, buildings once left vacant because of the 2008 recession are now “filling up” because of Plasan.

“It’s good to have a cutting-edge set of companies in Walker,” said Wash, assistant city manager and community development director for Walker. “It’s part of the diversification of Walker’s employment base. Whether it’s automotive or defense, (the move) seems to be working well.”

For Plasan, a manufacturer of ballistic armor, composite structures and other protection systems primarily for land vehicles used by government agencies, the move to Walker meant the company could expand its capabilities and deliver more services to clients, CEO Adrienne Stevens told MiBiz.

Currently, the company has three facilities in Walker at the north end of Wilson Drive, including its Plasan Carbon Composites division, a supplier of hoods, roofs and other components for the automotive industry, including for the Chevrolet Corvette Stingray.

“We basically came to Michigan with one customer and one specific program and we’ve got more than a dozen programs that are in work today, and many new programs and opportunities in the pipeline,” Stevens said. “The move is paying off great by having a U.S. presence, really.”

By relocating to Walker from Bennington, Vt., Plasan’s been able to grow through multiple investments. For example, the company recently purchased a $2 million metal fabrication facility and a 660-ton press break.

According to Stevens, the equipment and facilities allow the company to supply systems for more than 30,000 vehicles globally that are outfitted with Plasan’s “armor and technology,” making the company a “one-stop, full-service shop” for its customers.

“(The expansion) is enabling the business to grow, as it reduces costs, improves efficiency and (now) we have the ability to control and respond quickly,” Stevens said.

In addition to its expansion, Plasan recently landed one of its largest programs to date in the Joint Light Tactical Vehicle (JLTV). The program is “an Army-led, joint modernization program designed to replace a portion of Army and Marine Corps light tactical wheeled vehicle fleets while closing an existing gap in payload, performance and protection,” according to Stevens.

The contract is Plasan’s largest vehicle program for the U.S. Armed Forces, she added.

ROOM FOR GROWTH

With the federal government increasing its spending on defense programs, companies like Plasan are looking to capitalize on new growth opportunities.

According to national reports, the Trump administration will invest $716 billion into its military defense budget by 2019, an increase of $82 billion from 2017. The additional spending leaves the door open to more expansion for Plasan, a manufacturer that produces more than 6,500 armor components a month.

“There’s a whole lot of activity that’s occurring, and of course our biggest asset that our U.S. Army has is our troops,” Stevens said. “It becomes imperative that our troops be protected with products (that we make).”

Despite an increase in spending, PricewaterhouseCoopers reports that “there are many uncertainties surrounding how that money will be spent,” including the style of programs the government may initiate — from traditional longterm weapons development systems to creative technology solutions.

The report notes that executives at defense companies must “confront” change in how they make decisions with capital expenditures and research and development spending by adopting less risk averse approaches.

“Accept uncertainty as part of the normal course of business; view it as an opportunity, not a danger,” according to the report.

With roughly 500 employees at its West Michigan campus, Plasan is looking to expand its offerings in the commercial segment. In part, that’s because West Michigan is just a few hours away from “everything,” Stevens said, including the automotive OEMs, Oshkosh Corp., Navistar, BAE and AM General.

“We don’t just sell to defense customers — we’re pursuing the commercial market also, so we can do work for commercial automotive, agriculture and other suppliers,” Stevens added, noting the company specializes in “customer-defined build-to-print armor and metal fabrication.”

In the next few years, Plasan aims to split its business evenly between the commercial and defense segments.

“West Michigan is really a fantastic location to be,” Stevens said. “Customers can come see our facilities, and we can be face to face in developing programs, developing relationships. It shows our investment in them by being close to them.”

Automotive supplier Benteler Automotive Corp. faces a grim reality: Two-thirds of the company’s maintenance technicians will “retire out” of the workforce over the next few years.

Automotive supplier Benteler Automotive Corp. faces a grim reality: Two-thirds of the company’s maintenance technicians will “retire out” of the workforce over the next few years.

The Tier One supplier to OEMs ranging from Ford and General Motors to BMW needs to hire about 60 people to replace the maintenance technicians that are expected to retire at its Michigan plants in Galesburg, Grand Rapids and Holland.

But rather than poach employees from other manufacturers or just hope people with the right skills will show up at Benteler’s doorstep, the company opted instead to take training into its own hands with the creation of an apprenticeship program in Kalamazoo, according to executive Duke Moses.

“The guy I am looking for, someone else already has him,” said Moses, manager of Benteler Academy, the training division of Benteler Automotive. “It really takes growing your own (workforce) now to have a sustainable long-term plan for the normal attrition of retirement.”

In Kalamazoo, Benteler is partnering with schools and talent agencies to identify seven students for the company’s new apprenticeship program.

Experts say many West Michigan manufacturers have revisited the apprenticeship-based training model in recent years. For one, the apprenticeships have students working from day one and the programs come at no cost to the employer to set up, said Jakki Bungart-Bibb, deputy director of operations for the Kalamazoobased W.E. Upjohn Institute for Employment Research.

“We are seeing a lot of manufacturers going that route again,” Bungart-Bibb told MiBiz. “Many years ago, apprenticeships were what most manufacturers did. Then we went through a stage where they didn’t do it anymore. Now, there is a talent shortage so people are going more toward that route to fill that gap.”

The talent gap is projected to worsen in the coming years. According to a recent study commissioned by the Michigan Talent Investment Agency, Michigan employers will have more than 811,000 jobs to fill through 2024 in growing sectors like I.T. and computer science, manufacturing, health care and other professional trades.

At Benteler, creating a talent pool through apprenticeships solves many of the problems the company faces over the next two years and helps it replace an aging workforce, Moses said.

“The individual we are looking for is not unemployed, and you are not going to hire them away from another company,” Moses told MiBiz. “It’s really difficult now. It’s much easier to create your own culture, create your own talent pool.”

That’s why Benteler Automotive has partnered with Kalamazoo Valley Community College on the apprenticeship program. The apprenticeships from Benteler Automotive are a five-year commitment for students, with three years of the program taking place in a college setting. For the remaining two years, the student learns while working full time at Benteler Automotive, Moses said.

“We have a lot of attrition, a retiring workforce that’s going to happen over the next couple of years, and we’ve decided that our long-term sustainable model to replace those retiring from the workforce is to go the apprenticeship route,” Moses said.

Benteler’s apprentices are paid $10 an hour while they are at school, earn several certifications and credentials, and can receive their journeyman’s card in mechatronics or other fields. As an added incentive, Benteler Automotive apprentices also have their housing and education paid for while attending classes.

“They are making a little bit of a salary while they are doing their schooling,” Moses said. “It’s pretty lucrative. … They will come out of the three years and have a huge jump in pay (compared) to the entry level, for example, as a maintenance technician or an electrical journeyman.”

ENTICING STUDENTS TO FACTORY

To encourage students to consider a career in the skilled trades, Benteler Automotive employees are “actually going to students and their parents,” according to Moses. That translates into the company attending several annual events, including recruitment fairs, to stay in contact with high school, vocational center and community college students in each region of Michigan.

The proactive approach differs from other manufacturers, who rely on factory tours or talent agencies to bring in new workers, according to Moses.

“We are not waiting on the school to come to the manufacturer because if you do, then it won’t happen,” Moses said. “That’s how we are attacking the recruiting of the students, by targeting students all the way back to ninth grade. … If you wait too long, those students have already made a decision by the 12th grade of what they want to do. You have to get them early on, especially with their parents.”

Most manufacturers face an uphill battle when it comes to career opportunities in their industry. To that end, a recent survey of more than 400 students and 600 parents commissioned by the Michigan Talent Investment Agency found “low awareness and limited knowledge” about the opportunities that exist with apprenticeships.

Moses wants to change that through Benteler’s outreach.

“They can get a better understanding of what Benteler and other manufacturers are trying to do now (with apprenticeships), and that it gives a kid a great education, a great work experience and (they) come out of college with no debt,” he said.

FINDING APPLICANTS

One reason manufacturers struggle to find workers relates to the overall lack of applicants, especially as unemployment in West Michigan hovers around or below 4 percent.

According to a study from Milwaukee-based staffing firm ManpowerGroup, talent shortages are growing around the world, reaching a 12-year high in 2018 with 46 percent of U.S. companies noting difficulties in hiring employees.

“As companies digitalize, automate and transform, finding candidates with the right blend of technical skills and human strengths is more important than ever — yet 27 percent of employers say applicants lack either the hard skills or the human strengths they need,” according to the study.

Sammie Lukaskiewicz, deputy director of marketing and strategy for the Michigan Department of Talent and Economic Development, said the challenge in the state is more of a “career awareness” gap, in that people don’t understand what options are available with apprenticeships.

“I think it’s this perception issue we have with skilled trades,” Lukaskiewicz said. “People think these are dirty, dangerous and dead-end jobs. They don’t understand that with an apprenticeship, you can get a college education, making money while you are learning how to do the job.”

Changing that perception means helping young people and parents understand that “a great career doesn’t always need college,” Lukaskiewicz said.

Recently, business leaders and educators launched the Michigan Apprenticeship Experience Sooner campaign, a marketing effort led by the state to raise public awareness for students, parents, educators and employers about the value of apprenticeships.

The campaign aims to pinpoint some of the perks of apprenticeships, including students earning money while in school and having a full-time job once the program is completed.

According to statistics from the United States Department of Labor, Michigan had 17,731 active apprentices in 2017, up nearly 29 percent from the year prior.

The initiative’s goal now is to increase participation in apprenticeships by 15 percent annually in Michigan.

“Apprenticeships are a long-term investment by the employer, who is training them to fit needs of their company, ” said Bungart-Bibb of the Upjohn Institute. “People out of high school have for years been pushed to go to college. With apprenticeships, students are still learning a skill. It’s one of the difficulties to get younger people (interested in) apprenticeships, but we think it’s starting to catch on.”

Industry headwinds such as steel and aluminum tariffs and new disruptors are forcing many West Michigan office furniture makers to deal with new challenges.

Office furniture execs brace for industry challenges

Industry headwinds such as steel and aluminum tariffs and new disruptors are forcing many West Michigan office furniture makers to deal with new challenges.

While the Trump administration instituted the tariffs in a bid to support American jobs, office furniture executives say they’re left to deal with the consequences of rising costs, which ultimately will get passed along to their customers.

On top of new competition from coworking spaces and e-commerce retailers shifting consumer expectations in the buying process, executives say the added tariffs create more uncertainty at a time when the industry has been “three years away from a recession for about 10 years,” according to Steelcase Inc. President Jim Keane.

“We have to be very aware of what’s happening economically. We have tariffs to deal with, we have a whole series of different things that are changing all the time,” Keane told MiBiz. “You can no longer just develop (and) create a business that’s immune from all of that. You have to recognize that change will constantly be coming, constantly adapting.

“Whether it’s an economic cycle or it’s new tax policies or it’s tariffs, or whatever it is — be highly adaptive.”

Manufacturers already are feeling a direct impact from various headwinds related to the tariffs.

As MiBiz previously reported, Steelcase (NYSE: SCS) applied for a tariff waiver in March for a specialized porcelain-enameled steel the company sources from Japan for use in whiteboards made by its Georgia-based PolyVision division. At the time of the report, the U.S. Bureau of Industry and Security had already received 10,444 steel and 1,624 aluminum waiver applications.

Last week in announcing first quarter financial results, Steelcase CFO Dave Sylvester cited rising steel costs as driving a new round of price adjustments, the company’s second in four months.

“We expect commodity cost increases to continue pressuring our gross margin for another quarter or two while these price adjustments take fuller effect,” Sylvester said in a statement.

Another executive dealing with the tariffs is Herman Miller Inc. President and CEO Brian Walker.

“To be frank, it makes it harder to solve customer problems as economically as (manufacturers) would like,” Walker told MiBiz in Chicago at the NeoCon trade show earlier this month.

“You’d have to ask yourself: How do you cover (the increasing costs for metals)? You have to do it through price increases,” Walker said. “We’re nervous about it from what it does to the economy. We’re not really nervous about what it does for (the company) in the long run. We’ll adapt. We always have.”

Haworth Inc. Vice President of Global Strategy and Marketing Paul Nemschoff thinks West Michigan-based OEMs will be able to keep up with the disruptions caused by the tariffs, but acknowledges their level of worry has also ratcheted up in recent months.

“I’m more concerned of the indirect activities than I am on the direct steel and aluminum side of things,” Nemschoff said. “Is there an impact? Yes. Does it concern us? Yes. We’re more concerned if these tariffs lead to other tariffs … (and it creates) a trade war.”

AGE OF E-COMMERCE

“If people are looking at space differently and using those resources — is that a threat? Possibly,” said Todd Custer, second-generation owner of the Grand Rapids-based office furniture dealer Custer Inc.

He noted that some of the largest global companies have started to use organizations like WeWork to house a part of their workforce.

“WeWork makes … all of their own design decisions, (and) they are up and running in two to three months after they sign a lease,” he said. “That pretty much takes the furniture manufacturers and the dealers out of the picture. It’ll be interesting to see if that continues.”

While WeWork poses a threat to traditional office furniture OEMs, Amazon is changing consumer expectations in the ordering process, Custer said, adding that “people want stuff really fast” in an era of free two-day shipping from the online retailer.

The difference for a dealer like Custer Inc. stems from its ability to offer “custom fabrics and custom finishes” that companies such as Amazon will not be able to offer, he said.

Still, many dealers are trying to adapt to market shifts by focusing on “managing customer expectations,” Custer said.

Currently, Custer Inc. is using a “quick ship” strategy to offer customers a five-day turnaround on orders. The problem is that most dealers and manufacturers are limited to the sizes and finishes they have in stock, Custer said.

“A lot of manufacturers have quick ship options with colors and sizes, but are limited with its offerings,” he said. “For us, if you order a chair, it may take four to eight weeks to get it. Our clients are now (asking), ‘Can we order that and have it here in two days?’

“You have to explain to them that it’s custom — it’s different.”

INVEST NOW, OR WAIT?

Another worry comes in how e-commerce affects freight for manufacturers, given the volume of purchases now going through websites like Amazon that require shipping, according to Haworth’s Nemschoff. The possible freight disruption is forcing companies like Haworth to reassess their inventory practices, he added.

As well, companies will need to assess how they invest in their physical environments and office furniture, especially with the fed raising interest rates and hinting at more increases this year, Nemschoff said.

“I think rising interest rates, in time, will start to inhibit us a little bit, as it gets more and more expensive for companies to borrow money, whether it’s to put into new buildings or furniture or other stuff,” he said.

Other headwinds the office furniture manufacturing industry must face are the graying of their workforce and an overall shortage of skilled labor that’s affected companies across all sectors in West Michigan. As a result, Nemschoff said Haworth has focused on culture when trying to recruit prospective candidates amid the tight labor market.

“When you talk about low labor unemployment, that’s where individuals are starting to look at what are the workplaces that inspire me,” Nemschoff said. “So it’s not just about pay, it’s not just about benefits, but it’s also about creating a good, agile work environment, because of the fact that they have choices.”

Two perfectly logical people can share an experience and still come to two entirely different conclusions.

Veteran office furniture execs differ on view of industry’s future

Two perfectly logical people can share an experience and still come to two entirely different conclusions.

That’s something the recent viral meme featuring the “laurel or yanny” audio clip demonstrated, dividing married couples, friends and coworkers alike. It even drew the attention of Speaker Paul Ryan, who declared it was “just so obvious” that the voice said “laurel and not yanny.”

The clip serves as an example — albeit a whimsical one — that people can view the same facts and wholeheartedly disagree about what they observed.

That’s playing out to some degree among a pair of veteran executives at West Michigan-based office furniture OEMs. Despite many similarities between them and even the two companies they lead, Travis Randolph and Bill Keller differ greatly in their assessment of the state of the industry they have in common.

Randolph, the president of Zeeland-based Symbiote Inc., believes the industry is teetering at the precipice of a drastic downturn, driven both by economics and demographics. Yet Bill Keller, the newly appointed president of Grand Rapids-based Leland International Inc., cites those two factors as reason to be optimistic about the industry’s future.

It’s an interesting contrast given the firms’ similarities: Both companies fly under the radar in West Michigan, somewhat by choice. They each employ fewer than 50 people. As well, both rely heavily on contract manufacturers and focus on value-added aspects of the process.

What’s more, Randolph and Keller each have more than three decades of experience in the industry, including a turn at one of the “Big Three” firms in West Michigan.

Here’s a look at each of their outlooks.

VISIBILITY LACKING

Symbiote — a designer and engineer of laboratory furniture for life sciences, aerospace/defense and high-tech R&D environments — is coming off “the best year we ever had — by a long shot.”

That’s causing Randolph to worry.

The reason: In the company’s 30-year history, it’s experienced several economic cycles, each one of them punctuated by “one huge project” before the situation turns toward a recession.

For Symbiote, 2017 was a year for one of those huge projects, which Randolph said he couldn’t name because of a customer non-disclosure agreement.

Given his prior experience, he’s left wondering when the shoe will drop.

“I don’t know that anybody has broken ground on any new major projects that we’re going to be involved in. I’m sure they have, but I can’t tell you what the address is — before I could,” Randolph said. “What we’re doing right now is great; where we are next quarter is unknown.”

Randolph also questions how well other industry players are positioned to innovate through what he thinks could be a major economic disruption in the next two to five years.

“I fully believe that we’re going to have a tough economic situation coming up, and how those folks deal with the realities of that is hard for me to imagine,” he said.

Randolph has positioned Symbiote to gear its product innovation toward U.S. industries that cannot be shipped to other countries. Its three verticals — life sciences, aerospace/defense and R&D — also are adopting technology at a rapid pace, leading him to remain confident that Symbiote will be positioned well in the long run, even if the economy dips in the short term.

“The whole phenomenon of R&D is taking over the world, quite candidly. If you stop and think about it, there’s nothing more important than R&D,” Randolph said.

Randolph also is a student of demographics, noting that subsequent generations will not equal the cohort of Baby Boomers.

For example, adults aged 65 and older will outnumber children under 18 years old for the first time in 2035, according projections from the U.S. Census Bureau.

“You’ve got to deal with the size of the cohort of Baby Boomers — it’s just a huge number,” Randolph said. “It doesn’t take much offset to be into negative replacement, as opposed to positive replacement. That, to me, is really going to be one of the things that is going to significantly flavor economic success in the 2020s.”

In particular, Randolph doesn’t see most major contract furniture OEMs being very proactive about designing for future growth engines of the American economy. While they’re trying to break into the high-volume residential market or dabble in non-clinical health care settings, they’re leaving behind opportunities to serve companies’ changing needs that will be brought on by those demographic shifts, he said.

As the overall industry shifts, he expects some shrinkage to occur.

“The office furniture industry is smaller than the dog food business,” he said. “Dogs eat every day. You only buy furniture once every decade.”

CUSTOMIZATION AT WORK

Meanwhile, Keller at Leland International maintains a positive outlook.

The company continues to capitalize on the increasing shift toward customization in the office furniture industry. Within the company’s niche in guest seating and tables, that means keeping flexible to offer a range of colors, fabrics, finishes and other custom touches to meet customers’ expectations.

Believing that its “expertise is that last step in the process” of manufacturing contract furniture, the horizontally integrated company focuses on end-of-the-line assembly and adding the finishing touches to products before they’re placed in the box and shipped to customers.

The flexibility to accommodate customized orders has become increasingly important as customers design spaces that fit their individual companies and offer their generationally diverse workforces the variety of spaces they’re demanding, Keller said.

That’s particularly important as companies “transition from a Boomer workforce to a Millennial workforce and even younger than Millennials,” according to Keller. Offices are shifting to more comfortable spaces because that’s how younger generations want to work, he added.

“They are required almost to create a variety of spaces within a workplace for their younger workforce to work,” Keller said. “Because of technology, because of how the younger generations have grown up with technology, they can work no matter where they are. They don’t need to have a single desk, a single office, a single place. Their desire is to work wherever it is most comfortable for them and most productive for them to work.

“So designers are forced to create this variety of workspaces, whether it’s cafes, small meeting rooms, lounge areas — anywhere that has some comfort and has some privacy and is conducive to the work that the newer workforce needs.”

Importantly for smaller OEMs like Leland, the shift has led designers to change their buying habits to favor sourcing office furniture from a variety of companies, rather than just buying whole lines from a single manufacturer.

“On any given project, it’s not just one or two or three manufacturers providing solutions, it’s now from 20 to 40 manufacturers providing the eclectic solutions that designers want for their clients,” Keller said.

He remains bullish about Leland’s prospects as smaller companies have a better shot at being part of the diverse mix of OEMs in customer orders, especially given his projections for a strong economy in the years ahead.

“We are doing very well, as we’re having record production schedules. The market is good right now. Corporate America is doing well. Universities are spending money,” he said. “In this industry, you always have to prepare for changes. But today, things are going pretty well. I would say maybe they’re going better for some of us smaller companies than necessarily for the larger companies. We are growing, and I would say it’s better today than it was two years ago.

“A lot of that, for us, is these changes that are taking place within the design of the workspace. … As a smaller company, we have the opportunity to go in new directions quickly.”

Inside Chicago’s Merchandise Mart at NeoCon earlier this month, office furniture manufacturers displayed new products that both showcased and contradicted the renewed shift to more private office spaces.

Good office design blends mix of settings, execs say

Inside Chicago’s Merchandise Mart at NeoCon earlier this month, office furniture manufacturers displayed new products that both showcased and contradicted the renewed shift to more private office spaces.

In many ways, that dichotomy indicates where the pendulum may be swinging next.

To some extent, industry execs argue that there’s no wrong or right option when it comes to what office furniture manufacturers should be building and offering to customers these days.

According to Steelcase Inc. (NYSE: SCS) President Jim Keane, it can be a combination of both public and private spaces.

“We sell a lot of furniture that goes in the private office, and lots of furniture that goes in the open office,” Keane told MiBiz. “As the pendulum swings one direction, it’s tempting for us to think it’s swinging back to where it was before. And I think that’s the difference: It never actually goes back to the old thing, it goes forward to some new thing. That’s where the pendulum sort of breaks down.”

Herman Miller Inc. (Nasdaq: MLHR) President Brian Walker appears to agree with Keane, noting that customers and manufacturers have a tendency to get binary in creating spaces — either “it’s all closed, (or) it’s all open” — a situation he described as presenting “false choices.”

“I think you have to constantly be asking: What is the right mix of those levers to pull? And that depends on the kind of work a company does, the kind of work the individual does, the personality of the company,” Walker said. “I think our job is to work with our customers to say we have a portfolio that can do all of those things.”

While it’s interesting to watch the push and pull from private offices and individual workspaces to more of an open plan and back again, Haworth Inc.’s Paul Nemschoff said the shift proves manufacturers must offer a range of options for consumers.

Nemschoff, vice president of global strategy and marketing at the Holland-based furniture maker, cited the company’s new Cultivate table as an example.

“That is a play right into (how) we need easy and simple collaborative spaces for people,” he told MiBiz. “At the same time, when we look at private offices, we’re looking at opportunities — whether on the phone booth side or other areas — so that people can have an impromptu area to work.”

Despite some optimism from office furniture execs, industry research indicates that the overall office footprint is shrinking.

According to a report from the Mortgage Bankers Association, a national organization that represents the real estate finance industry, office occupancy reached 165 million square feet over the last six years, “well below the average in previous recoveries.”

The MBA notes tenants are leasing far less space per employee in a move to save costs, with the “preference for many people — particularly millennials — to work in more open, albeit tighter, work spaces.”

With the office footprint shrinking in the United States, Todd Custer is changing the way office furniture dealer Custer Inc. approaches its clients amid the whole private-versus-open space conversation.

“Let’s not just focus on the workstation and the private office — let’s focus on all of those other areas,” said Custer, president and CEO of Custer Inc., a Steelcase authorized dealer. “What kind of work is your client doing — are they collaborating or communicating? It really flips the conversation where we are really talking about these other spaces first — the lounge, the work cafe, the fun, cool areas where people want to spend time. … It’s a different communication strategy with your clients and having them think differently in how to use their spaces.”

With the industry the way it is, designers and salespeople have to be “really intelligent on those spaces,” from how they are being used to what products work best in a certain setting, Custer said.

“It’s really a different kind of sell than we are used to,” he said. “(Clients) want to make their mark. They want to bring their values, culture, colors — whatever it is — into a space. So you are seeing a little bit more creativity in the office space (design).”

THIRD-PARTY SPACES

While Walker acknowledges that some companies are moving away from the open-office design in favor of pop-up or third-party spaces, he believes they are doing so because their current spaces are “not good.”

“I think of the companies (like) General Motors, who we’ve helped — I look at their spaces and their people aren’t going to third spaces,” Walker said. “They want to be in the space. The problem is not this question of open or closed. The question is: How good is the space? If the third space is better and you have mobility, you’ll choose to go to the third space.”

Walker said progressive companies such as tech giant Apple Inc. encourage their employees to work in collaborative spaces to enable them to solve problems faster, which puts the burden on employers to provide spaces that fit the bill.

“That’s not to say that the third-place spaces aren’t important,” he said. “Even we will have our own third-place spaces, either within Herman Miller or for our remote people. I don’t think it’s an either/or (question). We also are going to serve those third-place spaces.”

Also catering to the third-place market space is Steelcase via its WorkCafé, a workspace that offers some of the amenities found in a diner, as well as lounge furniture, Wi-Fi and other experiences conducive to working.

According to Julie Barnhart-Hoffman, a design principal with Steelcase’s WorkSpace Futures Group, “WorkCafé or other corporate third places … can be more productive and efficient because they have the tools (workers) need.”

“There’s no uncomfortable seating, there’s the right technology. But it’s the vibe that’s the pull. It connects people with colleagues, their work and the organization,” Barnhart-Hoffman said on Steelcase’s website.

GOING OUTDOORS

When Haworth added JANUS et Cie to its portfolio in 2016, the company was looking for different ways to broaden its capabilities. At the time, one particular segment stuck out: the outdoor furniture arena.

“We’re always looking at different opportunities out there, both on our commercial furniture side as well as on our lifestyle design side, which is really more focused on residential,” Nemschoff said. “The whole ‘resimmercial’ piece that people talk about — it’s kind of the combination of the two. We think, because of our portfolio, we have as much opportunity to succeed in that as anyone.”

When MiBiz reported on the acquisition in 2016, the company noted it gained a “global leadership position” in the outdoor furniture sector.

Recent deals from Steelcase are having a similar effect on the company’s product portfolio, including its partnership this month with Extremis, a Belgium-based designer of outdoor furniture.

“Our momentum continued to build as our new products, partnerships, and updated showrooms helped our order rates grow faster than the market during recent months,” Keane said in a statement. “We further strengthened our growth potential by launching a number of innovative products (and) expanding our offerings through additional partnerships.”